Gray v. Nussbeck (In re Gray)

• Decision Date: 07 June 2017
• Docket Number: Case No. 12–22251,Adv. Pro. No. 15–6005
• Court: U.S. Bankruptcy Court — District of Kansas
• Parties: IN RE: Sheldon A. GRAY and Karla Latonya Houston–Gray, Debtors. Sheldon A. Gray, Plaintiff, v. Ronald Nussbeck, Defendant.

573 B.R. 868

IN RE: Sheldon A. GRAY and Karla Latonya Houston–Gray, Debtors.Sheldon A. Gray, Plaintiff,

v.Ronald Nussbeck, Defendant.

Case No. 12–22251

Adv. Pro. No. 15–6005

United States Bankruptcy Court, D. Kansas.

Signed June 7, 2017

Sheldon A. Gray, Kansas City, Mo, pro se.

Robert A. Kumin, Overland Park, KS, Kevin J. Odrowski, Kansas City, MO, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS AND ORDERING DEFENDANT TO SHOW CAUSE

Robert D. Berger, United States Bankruptcy Judge

Section 524 of the Bankruptcy Code is the backbone of an honest but unfortunate debtor's fresh start.¹ It operates as an injunction against the commencement or continuation of any action to collect a discharged debt.² It unambiguously voids past and future in personam judgments on discharged debts "at any time obtained."³ Section 524 also provides the sole authority under which a discharged debt may be reaffirmed and collected.⁴ A post-discharge agreement between a creditor and a debtor to repay a discharged debt, regardless of whether the agreement includes new consideration, is not enforceable unless, among other requirements, the agreement is filed with the bankruptcy court.⁵ In sum, § 524 provides "an equitable remedy precluding the creditor, on pain of contempt, from taking any actions to enforce the discharged debt."⁶

Here, the Court is asked to conclude that full faith and credit, issue preclusion, and the Rooker –Feldman doctrine deprive this Court of jurisdiction over Debtor's claims that Defendant violated § 524 by taking an in personam judgment in state court that included discharged debt. The Court declines to do so.

I. BACKGROUND

Plaintiff/Debtor Sheldon Gray filed a voluntary petition for Chapter 7 relief on August 17, 2012. Defendant Ronald Nussbeck was scheduled as an unsecured creditor in the case and received notice of the same in December 2012.⁷ The amount of Debtor's debt to Defendant was scheduled as "unknown."⁸ Debtor, without objection, received a discharge on January 17, 2013.⁹ Debtor's case was an asset case and an order fixing the time for filing claims was served on all scheduled creditors, including Defendant.¹⁰ Defendant had actual notice of Debtor's bankruptcy and discharge, as well as timely notice to file a proof of claim.

Thereafter, this Court's record is silent as to any interactions between Debtor and Defendant until February 11, 2015, when Debtor, acting pro se, commenced this adversary proceeding against Defendant. The entirety of Debtor's allegations in his Complaint against Defendant are brief. Debtor writes:

[Defendant] took me to Jackson County Court for debt include in the Bankruptcy of $10,000 personal loan, $14,187.52 BOK, and $18,954.01 real estate taxes on 6430 troost ave, Kansas city mo 64131, and won a judgments in December 2014.

Complaints pursuant to Fed. R. Bankr. P. 4004(a) or 4007(c), motions under Fed. R. Bankr. P. 1017(e).

After being served, Defendant filed his Motion to Dismiss Debtor's Complaint. Defendant argues the Complaint should be stricken because it was not filed by Debtor's counsel of record in Debtor's main bankruptcy case. Defendant also argues the Complaint fails to state a claim for relief. Finally, Defendant argues this Court does not have jurisdiction over the Complaint as a matter of "full faith and credit, issue preclusion and the Rooker –Feldman doctrine,"¹¹ as the Complaint is an attempt by Debtor to revisit a state court judgment.

Courts construe a pro se litigant's pleadings liberally and apply a less stringent standard than that which is applicable to attorneys.¹² Here, Debtor's Complaint references as the bases for his claims Federal Rules of Bankruptcy Procedure 1017(e), 4004(a), and 4007(e). Rule 1017 concerns dismissal or conversion of a bankruptcy case, while Rules 4004 and 4007 address, respectively, the grant or denial of discharge and the determination of the dischargeability of a debt. As the Complaint references a $10,000 loan included in Debtor's bankruptcy, and in light of Debtor's reference to rules governing discharge, the Court interprets Debtor's Complaint as one to enforce his discharge. The Court verified its interpretation at a status conference held on April 7, 2016, where Debtor's Complaint was clarified as arising out of a state court judgment that included prepetition debt.

The majority of the state court record was not available for the Court's review at the status conference, so Defendant agreed to and did submit additional exhibits to shed light on the state court proceedings. The Court later gave the parties notice of its intent to take judicial notice of the pleadings and other documents filed in the state court case.¹³ Neither party objected, so the Court took Judicial Notice of all the pleadings and other documents filed in Nussbeck v. Gray , Case No. 1316–CV27930 (Circuit Court of Jackson County, MO).¹⁴

Review of the state court pleadings shows that debt incurred by Debtor pre-bankruptcy was a significant portion of the amounts Defendant sought to recover. That is, Defendant sought through his state court law suit to recover at least a portion of $10,000 in debt that arose on or around February of 2010.¹⁵ This Court's record shows that this prepetition debt was never reaffirmed¹⁶ and, as a result, was discharged when Debtor received his discharge on January 17, 2013.¹⁷ Yet, and despite the discharge and lack of reaffirmation, the state court pleadings outline Defendant's efforts to collect that discharged debt through what was described as an "Agreement" and "Settlement of Debt."¹⁸ The Agreement and Settlement of Debt, along with Debtor's failure to honor the same, were the genesis for Defendant's state court suit against Debtor.

Notably, the pleadings suggest Debtor cooperated with Defendant in forming the "Agreement" and "Settlement of Debt." Regardless of whether Debtor cooperated with Defendant in forming the Agreement and Settlement of Debt, Debtor rightfully raised his bankruptcy as an affirmative defense in the state court litigation, arguing Defendant was seeking to collect a discharged debt.¹⁹ Debtor also briefed the discharge-related issues in a Motion for Judgment on the Pleadings and Motion for a New Trial.²⁰ The state court rejected Debtor's bankruptcy defense and entered and stood by its judgment against Debtor and in favor of Defendant for what included, at least in part, discharged debt.²¹

The state court's judgment against Debtor initially appears puzzling. But, a deeper review of the state court pleadings may explain, at least in part, the state court's rejection of Debtor's bankruptcy defense. For example, Defendant makes several statements to the state court that Debtor committed fraud against this Court, including false representation to this Court of (i) the ownership and value of certain property and (ii) the balance of Debtor's debt to Defendant, thereby depriving Defendant of notice of Debtor's bankruptcy case.²² As a general concern, Defendant's statements about fraud on this Court are confounding. Defendant received late—but still timely—notice of Debtor's bankruptcy case and the discharge, as well as timely notice of the deadline for filing a proof of claim. Further, neither the United States Trustee nor the Chapter 7 trustee took issue with the Debtor's conduct or disclosures in his bankruptcy case, and the deadlines for alleging such fraud are long expired. The record does not support Defendant's representations to the state court about Debtor's fraud on this Court.

After losing in state court, Debtor commenced this adversary proceeding. Defendant now seeks the dismissal of Debtor's complaint, arguing this Court does not have jurisdiction over Debtor's Complaint and that, even if this Court does have jurisdiction, Debtor cannot proceed pro se and fails to state a claim for which relief may be granted.

II. JURISDICTION

Federal courts have limited jurisdiction and, as such, "are duty bound to examine facts and law in every lawsuit before them to ensure that they possess subject matter jurisdiction."²³ The Court considers Defendant's jurisdictional argument first because, absent subject matter jurisdiction, the Court lacks authority to adjudicate Debtor's claims.

Debtor, albeit briefly, alleges Defendant violated the discharge injunction by proceeding to judgment on a discharged debt in state court. Defendant argues full faith and credit, issue preclusion, and the Rooker –Feldman doctrine deprive this Court of jurisdiction over Debtor's claim.

a. Rooker –Feldman Doctrine

The Rooker –Feldman doctrine "is a jurisdictional prohibition on lower federal courts exercising appellate jurisdiction over state-court judgments."²⁴ A difficulty is that "general confusion" surrounds Rooker –Feldman , and as difficult as it is to decipher, it is even more difficult to apply. Before discussing what Rooker –Feldman is not, it is appropriate to start with what it is: A doctrine that prohibits usurpation by a lower court of the United States Supreme Court's exclusive authority to void a state court judgment.²⁵ That is, it "precludes a losing party in state court who complains of injury caused by the state-court judgment from bringing a case seeking review and rejection of that judgment in [a lower] federal court."²⁶ Specifically, "[i]f success on the claims alleged in federal court would necessarily require the federal court to review and reject the state court's judgment, Rooker –Feldman applies."²⁷

Here, Debtor lost in state court and is complaining to this Court about the resulting injury, but he does so in a bankruptcy case that was filed and discharged before the state court litigation was initiated. Defendant, through his state court action, sought to enforce an agreement that § 524(c) explicitly rendered unenforceable because it was not filed with this Court.²⁸ Consequently, Debtor's prepetition debt to Defendant remained discharged and the resulting state court judgment on the discharged debt is void...